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Effective IR: Align with the Business Strategy, Be Transparent

Elena Doom, VP of Investor Relations at Honeywell, came to her role in 2009 after serving in other areas, including Treasury and Corporate Development, where as director she helped shape many of the company’s global M&A activities. As she discusses, her IR department strives to incorporate strategy setting within its messaging and initiatives, while improving the company’s communication with investors through the participation of the C-suite and other business leaders. Named by money managers and analysts as one of the best in the business in Institutional Investor’s 2014 IR Professionals rankings, she also shares her thoughts on the value of perception studies and how an organization’s culture is increasingly important among investors.

Elena Doom

Q: Can you talk a bit about your company’s recent performance?

Elena Doom: Honeywell’s performance over the past 10-plus years has really made a huge difference in how the investment community perceives and trusts the company today. We’ve built an impressive track record of meeting or beating consensus and are now viewed as a company that can perform in both good times and bad. Honeywell’s 2013 performance marked another year of record-level results despite continued challenges in the macro-economic environment. Even with lower sales growth, Honeywell expanded margins to new levels, and grew earnings per share by 11%, which was once again a multiple of over twice sales growth. We also continued to seed plant to drive future top-line growth, including investments in new technologies, manufacturing capacity and acquisitions, as well as leveraging the application of the Honeywell Enablers that will lead to more profitable growth across the portfolio. As a result, we’ve outperformed our peer group and the broader market in terms of total shareholder return on a short- and long-term basis.

Q: What are some leading practices you use in overseeing Honeywell’s IR activities?

Elena Doom: I’d first mention investor engagement, being proactive around communication and anticipating what we think the issues are going to be. We have a very strong tempo around investor and analyst events such that we do targeted Investor Days specific to issues and topics we know are going to come up. For example, we had one at the start of the sequestration and defense budget cut outlook to get out in front of the issue, offer our views and provide proactive education.

In general, best-in-class investor relations professionals have to be viewed as extensions of the management team, but there is absolutely no substitute for engaging several layers deep within the organization, into the executive ranks. Providing investors access to multiple layers of our management team is a very high priority at Honeywell, and I think it helps our efforts to simplify and improve the clarity of our messaging. Honeywell is a very big, complex organization that requires a lot of demystifying through transparency, through access, and our commitment to continuously improve in how we do that messaging.

Some ways we do that is through targeted Investor Days or going beyond the C-suite, if you will, to be represented at various conferences. For example, the sell side hosts anywhere from 10 to 15 conferences a year that we’ll attend. We staff those with a variety of different executives to make sure we’re hitting multiple areas of the portfolio and reiterating our key messages.

Q: What is your approach to partnering with C-suite executives?

Elena Doom: We’re fortunate in that both our CEO and CFO are extremely committed to the investor relations effort. In addition, we have two new vice chairmen, both former division presidents, and one of their responsibilities is to support IR activities. These executives are focused on championing IR access, global reach and pushing beyond the conventional marketing realms, such as going into international markets and sovereign wealth areas. They also support our efforts to push beyond the traditional type of institutional investor and the strides we’re making in attracting and sustaining our retail base.

But in order to hit the mark with those various constituencies, everything has to be boiled down to messages that are clear and simple. Whether investors or analysts are speaking to our CEO, our CFO or other executives, they have to feel that they’re getting direct, plain speak, with a genuine and candid approach that’s more than just a high-level speech.

Q: How do you manage the messaging component of IR, particularly when there are multiple spokespeople?

Elena Doom: We keep a robust living document of key messages that can be sectioned out, whether a discussion pertains to a corporate or broader Honeywell discussion or if it’s specific to one of our segments. We do that so that anyone who’s representing themselves to investors feels prepared and understands what we’ve said before, what are the current issues, what are the current hot buttons they may get confronted with, and what questions they will likely get.

Beyond numbers, I’m finding that a company’s culture is starting to matter more. It’s becoming a bigger factor in investment decisions and is as relevant as any other competitive differentiator. Arguably, culture is very challenging to quantify. But through the exposure we give to management, including C-suite and operational managers, that’s when investors and others can see right through into your corporate culture. You can point to annual reports and our chairman’s letter to shareholders as helpful, but ultimately what is more effective is the emphasis that we place on culture with every interaction we have with the investment community, as well as the consistency of our messaging.

Q: How has the practice of IR changed in recent years in terms of the demands of investors?

Elena Doom: I think there’s a deeper level of transparency. For example, coming out of the recession in 2009, we decided in early 2010 to issue our first set of five-year targets as a company. So we gave investors a little bit more of a long-term vision of where we thought we could go within the five-year horizon. I’m happy to report that despite being met with some skepticism early on and the further economic headwinds that were somewhat unforeseen we’re coming up just shy of the low end on our revenue range, and we are squarely in the middle of our segment margin range. And we just published our next five-year plan, with targets going out to 2018.

Q: The value of perception studies seems to be on the rise. Why is that?

Elena Doom: Perception studies help a company understand what’s on people’s minds and identify misperceptions. If there’s a message investors want communicated, a perception study is one vehicle to find that out. But for Honeywell, the biggest and most important aspect of perception studies is that they point to ways to unlock additional shareholder value.

To do perception studies effectively, CEO and CFO engagement is critical. At Honeywell, IR works with the CEO and CFO to set the objectives in terms of both quantifiable and qualitative information. I’ve found the feedback and the recommendations we get from the perception studies to be actionable and results-oriented. And we can track ourselves one year after the next. By having our CEO engaged, the feedback goes directly to our business units and operational teams and becomes a call to action to some extent.

We’ve also found that doing good perception work in advance of Investor Day planning is very worthwhile. I can’t say enough about the value of doing that. It gives you an opportunity to understand investors’ expectations and what additional information they might want, such as scorecards on M&A results to gain more insights into the company’s M&A track record.

Q: How do you and your team make sure the investment community is comparing Honeywell against what you consider your peer group?

Elena Doom: We do a lot of competitive intelligence work, and we’re tightly linked to our marketing organization. We also have very tight integration with Honeywell’s respective businesses so that we’re knowledgeable of market changes and position changes. When we’re communicating, we have to think about who the different stakeholders might be for targeted messaging, but we also use a comprehensive communications approach, working with others in the organization, such as communications and labor relations.

Q: What is your IR team’s role in shaping how the company interacts with activist investors?

Elena Doom: This ties directly to doing the perception study work I mentioned earlier. One of our approaches for being prepared for potential activism is anticipating what are the likely attack themes and thinking through our response. By doing good perception work, IR can help build better relationships with existing shareholders, analysts and portfolio managers, but also with members of the governance committees who vote on the Honeywell proxy. We’ve also taken steps to enhance our preparedness. Whether or not you think your company could be a near-term target, I think you always have to be ready. So we have also identified and prequalified our set of advisors who would engage with us on short notice.

Q: Do you have advice for other IR professionals?

Elena Doom: I think it’s about continuous improvement. Having had the benefit of being in this job for almost five years, I’m spending more of my time, and we’re doing more work, to understand where the high-impact, value-based activities are. Everything we do has a very tight linkage to our overall strategic plan for investor relations. Without that linkage, you might have a lot of meetings and be on the road all the time, but what are you going to have to show for it?

The IR role at Honeywell has traditionally been elevated, meaning that we’ve always tended to take people out of strategy and M&A for IR positions. We are not talking heads. We have to convey the business strategy and how we make money across multiple end markets and multiple business models, and I need to know how our peers do it.

FX

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